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Thread: The Ultimate Source of Profit and Loss on the Market

  1. #1
    Senior Member Verđandi's Avatar
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    The Ultimate Source of Profit and Loss on the Market

    The deal is always advantageous both for the buyer and the seller

    The changes in the data whose reiterated emergence prevents the economic system from turning into an evenly rotating economy and produces again and again entrepreneurial profit and loss are favorable to some members of society and unfavorable to others.

    Hence, people concluded, the gain of one man is the damage of another; no man profits but by the loss of others.

    This dogma was already advanced by certain ancient authors. Among modern writers, Montaigne was the first to restate it; we may fairly call it the Montaigne dogma. It was the quintessence of the doctrines of mercantilism, old and new.

    It is at the bottom of all modern doctrines teaching that there prevails, within the frame of the market economy, an irreconcilable conflict among the interests of various social classes within a nation and furthermore between the interests of any nation and those of all other nations.1

    Now the Montaigne dogma is true with regard to the effects of cash-induced changes in the purchasing power of money on deferred payments.

    But it is entirely wrong with regard to any kind of entrepreneurial profit or loss, whether they emerge in a stationary economy in which the total amount of profits equals the total amount of losses or in a progressing or a retrogressing economy in which these two magnitudes are different.

    What produces a man’s profit in the course of affairs within an unhampered market society is not his fellow citizen’s plight and distress but the fact that he alleviates or entirely removes what causes his fellow citizen’s feeling of uneasiness.

    What hurts the sick is the plague, not the physician who treats the disease. The doctor’s gain is not an outcome of the epidemics but of the aid he gives to those affected.

    The ultimate source of profits is always the foresight of future conditions. Those who succeeded better than others in anticipating future events and in adjusting their activities to the future state of the market reap profits because they are in a position to satisfy the most urgent needs of the public.

    The profits of those who have produced goods and services for which the buyers scramble are not the source of the losses of those who have brought to the market commodities in the purchase of which the public is not prepared to pay the full amount of production costs expended.

    These losses are caused by the lack of insight displayed in anticipating the future demand of the consumers.

    External events affecting demand and supply may sometimes come so suddenly and unexpectedly that people say that no reasonable man could have foreseen them. Then the envious may consider the profits of those who gain from the change as unjustified.

    Yet such arbitrary value judgments do not alter the real state of interests. It is certainly better for a sick man to be cured by a doctor for a high fee than to lack medical assistance. If it were otherwise, he would not consult the physician.

    There are in the market economy no conflicts between the interests of the buyers and sellers.

    There are disadvantages caused by inadequate foresight. It would be a universal boon if every man and all the members of the market society would always foresee future conditions correctly and in time and act accordingly.

    If this were the case, retrospection would establish that no particle of capital and labor was wasted for the satisfaction of wants that now are considered as less urgent than some other unsatisfied wants. However, man is not omniscient.

    It is wrong to look at these problems from the point of view of resentment and envy. It is no less faulty to restrict one’s observation to the momentary position of various individuals.

    These are social problems and must be judged with regard to the operation of the whole market system.

    What secures the best possible satisfaction of the demands of each member of society is precisely the fact that those who succeeded better than other people in anticipating future conditions are earning profits.

    If profits were to be curtailed for the benefit of those whom a change in the data has injured, the adjustment of supply to demand would not be improved but impaired. If one were to prevent doctors from occasionally earning high fees, one would not increase but rather decrease the number of those choosing the medical profession.

    The deal is always advantageous both for the buyer and the seller. Even a man who sells at a loss is still better off than he would be if he could not sell at all, or only at a still-lower price.

    He loses on account of his lack of foresight; the sale limits his loss even if the price received is low.

    If both the buyer and the seller were not to consider the transaction as the most advantageous action they could choose under the prevailing conditions, they would not enter into the deal.

    The statement that one man’s boon is the other man’s damage is valid with regard to robbery, war, and booty. The robber’s plunder is the damage of the despoiled victim. But war and commerce are two different things.

    Voltaire erred when — in 1764 — he wrote in the article “Patrie” of his Dictionnaire philosophique,

    To be a good patriot is to wish that one’s own community should enrich itself by trade and acquire power by arms; it is obvious that a country cannot profit but at the expense of another and that it cannot conquer without inflicting harm on other people.

    Voltaire, like so many other authors who preceded and followed him, deemed it superfluous to familiarize himself with economic thought. If he had read the essays of his contemporary David Hume, he would have learned how false it is to identify war and foreign trade.

    Voltaire, the great debunker of age-old superstitions and popular fallacies, fell prey unawares to the most disastrous fallacy.

    When the baker provides the dentist with bread and the dentist relieves the baker’s toothache, neither the baker nor the dentist is harmed. It is wrong to consider such an exchange of services and the pillage of the baker’s shop by armed gangsters as two manifestations of the same thing.

    Foreign trade differs from domestic trade only insofar as goods and services are exchanged beyond the borderlines separating the territories of two sovereign nations.

    It is monstrous that Prince Louis Napoleon Bonaparte, the later Emperor Napoleon III, should have written many decades after Hume, Adam Smith, and Ricardo, “The quantity of merchandise which a country exports is always in direct proportion to the number of shells it can discharge upon its enemies whenever its honor and its dignity may require it.”2

    All the teachings of economics concerning the effects of the international division of labor and of international trade have up to now failed to destroy the popularity of the mercantilist fallacy, “that the object of foreign trade is to pauperize foreigners.”3

    It is a task of historical investigation to disclose the sources of the popularity of this and other similar delusions and errors. For economics, the matter is long since settled.


  2. #2
    Senior Member Uwe Jens Lornsen's Avatar
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    I don't understand anything in that article .

    What ?

    1.) Pysical Law : Where there is one force or power , there is an opposite force or power , in idealistic opinion , both are of the same size
    in a non-moving static stable environment . Whenever one power increases , this increase has to be wihtdrawn from the opposite power ,
    and the object moves into the direction of the physical stronger power .

    2.) People have different talents : Some are fine handymen , and become clockwork mechanics or modern dentists .
    Other people are rough handymen , and become bakers or old-time dentists who just removed teeth .

    The baker is needed every day , the dentist is not really needed , pulling out a tooth can be done by everyone , especially
    in situations of emergency and lack of resources .

    3.) The financial markets have produced a large variety of alternate money derivates schemes , as for example short selling and
    emitting of options .

    A financial attendend , who is located by whatever reason in a high income-tax area , can probably reduce his income by
    losses , that he actually makes a profit , because of falling beneath a tax-level percentage .
    If the winner of a bargain is related to the clan or company , then not only both make a profit , but the company as a whole ,
    even if there would have been just one winner , when the losses are not enough , to reduce the income threshold of the looser .

    4.) Foreign trade can benefit both sides , but usually there is a winner . It depends on the point of view : When someone
    delivers raw materials like ore , he plunders his ancestor's resources . The buyer of the ore might loose paper money ,
    but enhances his manufacturing sector . The purchase of finished goods may cost money , but it enhances the infrastructure
    and military . The better infrastructure and military might be used to overwhelm one of the previous sellers , to add their
    valuables like soil, infrastructure , manufacturing and ore mines to one's common wealth . Known examples are England
    robbing the colonies of Holland , and NS-Germany occupying Poland and France .

    5.) The individual person might get still ahead considerably , when one looks at The Netherlands when it had lost it's colonies to
    England and shortly after got conquered by Napoleon and had to pay high ransom . It is claimed , that The Netherlands
    would have lost up to ˝ of it's wealth after regaining soveraignity ; that would mean , that one middle-class family owning
    $300 thousand would than just own $150 thousand afterwards , and this is not too bad , especially when owning paid-off
    soil and house .
    Mk 10:18 What do you call me a good master, no-one is good .

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